SPDR S&P 500 (SPY)
SPDR DJIA (DIA)
PowerShares QQQ (QQQ)
Major indexes hit new all-time highs over the past week, led primarily by mid- and small-cap sector gains. The S&P 500 Index has slowly, but steadily risen over the past month as illustrated in the chart. SPY is trading 1.6 percent above its July 12 price- a solid double-digit annualized return.
Volatility has been typically low throughout the summer vacation season and the broader indexes are likely to trade relatively flat over the next week as higher trading activity generally picks up after Labor Day.
SPY
Fidelity Floating Rate High Income (FFRHX)
DoubleLine Core Fixed Income (DLFNX)
Thompson Bond (THOPX)
Fidelity Corporate Bond (FCBFX)
Fidelity High Income (SPHIX)
iShares iBoxx Investment Grade Bond (LQD)
Interest rates reflected the overall market calm. Falling credit risk pushed up the price of high-yield, investment-grade and corporate bonds. Shares of LQD are pushing towards a new all-time high after a period of consolidation. FCBFX and similar funds are already at new highs.
The 10-year Treasury bond yield spent most of the past six weeks between 1.5 percent and 1.6 percent, a tight range that mirrors the S&P 500 Index over this period. Federal Reserve Chair Janet Yellen’s speech at Jackson Hole on Friday could, however, shake the bond market out of its slumber. The symposium offers the last major public platform of the year to announce important rate policy decisions as many of the world’s central banks and financial movers and shakers will be in attendance.
Sectors
Sectors have also reflected the broader market’s low volatility. Rate-sensitive financials and utilities lagged a flat bond market, while materials and energy followed oil prices higher.
Utilities have been in a downtrend since early July as financials climb, matching the move in the 10-year Treasury bond yield. Small-cap utilities are down 8 percent from their July peak.
The financial rally may be signaling rate expectations, as dividend paying stocks have moved in a similar direction. The five dividend funds shown below have underperformed the S&P 500 Index since early July.
Home construction stocks rallied strongly this past week following surprisingly high new homes sales in July. Homebuilders sold 654,000 new homes last month, more than 10 percent above the prior month and 10 percent higher than estimates. Shares of ITB did not hit a new post-2006 high, but the sharp rebound brings it close. A breakout in ITB would be a great sign, not only for the housing market, but the overall economy as a major generator of GDP growth and new jobs.
Shares of GDX are poised to experience a sharp correction following a six-month uptrend.
SPDR Energy (XLE)
First Trust ISE-Revere Natural Gas (FCG)
Market Vectors Steel (SLX)
Market Vectors Coal (KOL)
Echoing the break in gold, energy and commodity shares have turned lower. Copper is leading the decline in industrial metals, even as iron ore and coal coke, two ingredients for steel, push back towards 2016 highs. The impact of a pullback will be widely felt in emerging markets.
Oil topped out at $49 a barrel in over the past week. A big build in U.S. oil inventory, up 2.5 million barrels versus expectations of a 500,000 barrel decline, pressured prices on Wednesday.
Fidelity Low-Priced Stock (FLPSX)
The rally in FLPSX is proceeding as expected. Two weeks ago, FLPSX moved to a new 52-week high. The inverse head-and-shoulders pattern gives a price target of $56, and shares accelerated over the past week.
iShares MSCI Emerging Markets (EEM)
Emerging market shares followed gold and commodities lower over the past couple of weeks. Although shares of EEM experienced a breakout by climbing above $36 per share, the advance is threatened if the commodities complex weakens.
Russia, South Africa and Brazil were the worst performing BRICS over this period, pulling emerging markets lower. China also pulled back.
India, a net importer of commodities and less reliant on trade for economic growth, held steady. The last chart compares the price of crude oil to WisdomTree India Earnings (EPI).
